Confessions of A Capital Junkie

Confessions of a Capital Junkie
An insider perspective on the cure for the industry's

value-destroying addiction to capital
April 29, 2015
Safe Harbor Statement

This document contains forward-looking statements. These
statements may include terms such as may, will, expect,
could, should, intend, estimate, anticipate, believe,
remain, on track, design, target, objective, goal,
forecast, projection, outlook, prospects, plan,
intend, or similar terms. Forward-looking statements are
not guarantees of future performance. Rather, they are
based on the Groups current expectations and projections
about future events and, by their nature, are subject to
inherent risks and uncertainties. They relate to events and
depend on circumstances that may or may not occur or exist
in the future and, as such, undue reliance should not be
placed on them. Actual results may differ materially from
those expressed in such statements as a result of a variety
of factors, including: the future capital expenditures and
research and development expenses of the Group and the
industry, potential benefits from industry consolidation;
developments in global financial markets and general
economic and other conditions; changes in demand for
automotive products, which is highly cyclical; the high level of
competition in the automotive industry; the Groups ability to
realize anticipated benefits from any business combinations,
joint venture arrangements and other strategic alliances; the
Groups ability to integrate its operations; the Groups ability
to access funding to execute the Groups business plan and
improve the Groups business, financial condition and results
of operations; operating expenditures including in relation
to vehicle and powertrain development and compliance

with regulations; exchange rate fluctuations, interest rate
changes, credit risk and other market risks; our ability to
achieve the benefits expected from any capital optimzation
plans; and other risks and uncertainties.
Any forward-looking statements contained in this
document speak only as of the date of this document and
the Company does not undertake any obligation to update
or revise publicly forward-looking statements. Further
information concerning the Group and its businesses,
including factors that could materially affect the
Companys financial results, is included in the Companys
reports and filings with the U.S. Securities and Exchange
Commission, the AFM and CONSOB.
April 29, 2015
Purpose of the pitch
Goal is to provide clarity on two issues that have been raised

publicly by FCA
Industry has not earned its cost of capital over a cycle
Consolidation is the key to remedying the problem
What this is not about

An excuse for FCAs current ranking in the automotive food chain
Putting FCA up for sale
A revision to our 5 year plan (which remains a firm commitment)

A matter of life or death for FCA
SMs final big deal
What this is about

Dispassionate look at the industry from the outside using
insider knowledge
It is about choosing between mediocrity or fundamentally changing
the paradigm for the industry
April 29, 2015
Before we get into this, we should be reminded that
Everyone is entitled to his

own opinion, but not to his
own facts.
Daniel Patrick Moynihan
(Former US Senator and Ambassador to the UN)
April 29, 2015
Auto industrys capex and R&D requirements have

grown significantly over the past years
Mainstream OEMs
Premium OEMs
Top OEMs1Total capex + R&D spending over last 5 years (bn)2
CAGR:
Mainstream OEMs: ~12%
Premium OEMs: ~10%
122
117
107
91
76
18
19
17
14
12
91
99
104
78
64
2010
2011
2012
2013
2014
Source: Company annual reports

1
Includes mainstream OEMs: FCA, Ford, General Motors, Honda, Hyundai, Kia, Nissan, PSA, Renault, Toyota, Volkswagen. Premium OEMs: BMW, Daimler Cars
2
Translated at constant 2010 exchange rates (average January to December 2010)
April 29, 2015
... and going forward, new technological challenges

will continue to raise the bar on capital requirements
Forces at work increasing capital requirementsSelected examples
Regulatory-driven
Emissions
regulations
Tighter emissions
regulations
Costly new powertrains

Weight-saving
technologies
Customer-driven
Safety regulations
Stricter regulations
and customer focus
on safety
Adoption of state-of-theart safety technologies

across markets
Car connectivity
and autonomy
New infotainment
services
Customer expectations
on connected cars
Autonomous drive push
Auto OEMs
April 29, 2015
Product development costs are consuming value at

a much faster rate than in other industries
Time to reinvest enterprise value1 in product development (capital and R&D)2
Average number of years
~ 36
~ 28
~ 23
~ 18
~ 19
Average
across
industries3:
~ 20
~20 years
~ 13
7.8 8.5
Consumer & Retail
Building materials
Packaging
materials
Chemicals
Aerospace &
Defence
Pharma
Telecommunication
Oil & Gas
OEM 4
OEM 6
OEM 8
OEM 2
OEM 7
Premium OEM
OEM 5
OEM 10
OEM 9
OEM 1
~4.1 years
FCA
OEM 3
1.3
3.6 3.8 4.0

2.6 3.1 3.2 3.4 3.4
Auto
industry
average:
~7
5.0

1
2
3
Industrial activities only. Including pension liabilities

Calculated as 3-year average of the annual ratio between enterprise value (for the period 20122014) and capital expenditures plus R&D expenses
Based on the reference sample
April 29, 2015
... and high operational leverage amplifies profitability

swings across the cycle ...
EBIT Margin1 of Auto OEMs vs other sectors (%)
30%
19%
8%
(3%)
2005
2006
2007
2008
2009
2010
2011
2012
Aerospace & Defence
Building materials
Chemicals
Consumer products
Pharmaceuticals
Telecommunications
Premium OEM
Mainstream OEMs
2013
2014
Packaging

1
2
EBIT defined as Industrial reported EBIT plus income from equity accounted investments and excludes goodwill impairment. EBIT as per accounting principles adopted by
each company
Mainstream OEMs include: FCA, Ford, General Motors, Honda, Hyundai, Kia, Nissan, PSA, Renault, Toyota, Volkswagen
April 29, 2015
resulting in structurally low and volatile returns

ROIC1 of Auto OEMs vs other sectors (%)
30%
20%
10%
Consensus
WACC: ~9%
(10%)
2005
2006
2007
2008
2009
2010
2011
2012
Aerospace & defence
Building materials
Chemicals
Consumer
Pharma
Telecommunications
Premium OEM
Mainstream OEMs
2013
2014
Packaging materials
2
ROIC calculated as [Industrial reported EBIT x (1-taxes) + income from equity accounted investments] / Industrial Net Invested capital. Assumed a normalized tax rate equal
to 30%. EBIT excludes goodwill impairment. Industrial Net Invested capital is defined as industrial Trade Working Capital + Industrial PP&E + Industrial Intangibles
(excl. Goodwill) + Book Value of equity accounted investments + operating cash for OEMs (assumed at 12.5% of industrial sales). EBIT as per accounting principles
adopted by each company
Mainstream OEMs include: FCA, Ford, General Motors, Honda, Hyundai, Kia, Nissan, PSA, Renault, Toyota, Volkswagen
April 29, 2015
Why did this happen? OEMs spend vast amounts of capital to develop
proprietary components, many not really discernible to customers
Typical vehicle development costs
Powetrain
Tooling
~5%
New vehicle programdevelopment

costs split1
Other
~5%
Vehicle R&D
~40%
Powetrain/
R&D
~15%
4550%
5055%
Vehicle Tooling
~35%
Differentiating
products/
technologies
Products/technologies
undiscernible to
customer, potentially
overlapping with competitors
Chart scale based on mid-point of range shown
April 29, 2015
10
One industry solution focuses on reducing the

number of active platforms and increasing scale
Active platforms by OEM1
Number of top hats by platform2
Average across top 10 global OEMs
Average across top 10 global OEMs
22
3.3
21
18
2004
2009
-20%
2014
2.5
2.6
2004
2009
+30%
2014
"More of our components will be common, and more of our vehicles will be on global architectures"
Dan Akerson, GM (2011)
"I'm really proud to say that we've reduced that number down to 12 global platforms. In 2016 we'll reduce that down to a
further nine global platforms, and our team is working towards a further consolidation of that to get down to a long-term target
now of eight global platforms [] that obviously yields tremendous benefits for us as an enterprise
Raj Nair, Ford Group Vice President-Global Product Development (2015)
SOURCE: IHS
1
2
Adjusted to include only platforms with at least 2,000 cars manufactured in a given year
Including FCA, Ford, GM, Honda, Hyundai, PSA, Renault/Nissan, Suzuki, Toyota, Volkswagen
April 29, 2015
11
and some OEMs are trying larger scale

commonization across diverse brands
Golf
Spacefox
(2018)
Fox
(2017)
Lamando
MQB
MC-M
ARCHITECTURE
ARCHITECTURE
Voyage
(2018)
Scirocco
(2018)
Polo
(2016)
Passat
Golf
SportVan
CC
(2017)
Touran
Jetta
(2016)
Tiguan
(2016)
B-CUV
(2016)
Crossblue
Crossblue
coupe (2018)
Golf
SportWagen
Lavida
(2018)
Sagitar
(2017)
A1
(2018)
TT
Octavia
Ibiza
(2016)
Alphard
Harrier
RAV4
Avalon
Highlander
SAI
Avensis
Mirai
Sienna
Q1
(2016)
Q3
(2018)
Yeti
(2017)
Leon
A3
C-MPV
(2017)
Superb
B-CUV
(2018)
Camry
Prius
C-CUV
(2016)
C-CUV
(2016)
Estima
Prius
Alpha
(Prius V)
Wish
ES
Mebius
HS
NX
Venza
RX
Voxy
By the middle of 2020, we plan to expand TNGA (Toyota New Generation Architecture) to approximately half of the line-up [] Traditionally we
have tended to focus on developing individual models and lacked the total alignment and consistency, which will change with a company-wide effort.
Mitsuhisa Kato, Toyota Executive VP (2015)
Source: IHSGlobal 2018 Sales database as of April 2015, Toyota global newsroom
April 29, 2015
12
while others through one-off co-operations,

JVs and other equity tie-ups
Successful
Long-term industrial
co-operations (JVs)
Cross-shareholdings
enabled co-operations
Full integration
Low/negative
Expected impact at the time of the deal
High
One-off industrial
co-operations
Failed
Low
High
Level of integration
April 29, 2015
13
But all this has produced poor results so far,

as OEMs' returns and valuations are still depressed
2014 EV/EBITDA2
2014 ROIC
13.0x
22%
11.1x
10.7x 11.0x
13%
10%
11%
6.8x
12%
6.2x
Pharma
Consumer & Retail
Building materials
Chemicals
Telecommunications
Oil & Gas
Mainstream OEMs
Consumer & Retail
Pharma
Aerospace and Defence
Packaging materials
Chemicals
Building materials
Telecommunications
4.0x
Oil & Gas
Mainstream OEMs 1
9.1x
14%
7.8%
1
2
9.0x
Packaging materials
16%
19%
Mainstream OEMs include: FCA, Ford, General Motors, Hyundai, Honda, Kia, Nissan, PSA, Renault, Toyota, Volkswagen
Based on 2014 average enterprise value for the companies in the reference sample. EV including pension liabilities. EBITDA as per accounting principles adopted by
each company
April 29, 2015
14
Why havent these approaches provided

a significant lift to returns?
Large scale organic reduction in platforms

Reluctance to replace old, less costly architectures
Option available only to those OEMs with existing scale across platforms,
top hats and regions
Requires strict discipline to avoid upward standardization/over engineering
Lower risk in the short-term, BUT significantly slower execution,
entailing lower returns over an extended period
OEM co-operations
Most effective on single ventures, but with limited scope
Usually involve non-core elements of portfolio
Not a pervasive, substantive solution for any OEM
April 29, 2015
15
Why does industry consolidation matter?
High mortality rate caused by partial if non-existent integration

Cultural divide (corporate and otherwise)
Inequality of integrating parties
Operating models radically different and never merged

Insufficient sensitivity for brand differences
Lack of respect/trust for one another
Complexity proved to be too much of a stretch for leadership teams

BUT
It enables
Fast execution, enabling rapid scale gain
Fostering step-change/best-of-best approach to modularity/ commonality
AND
The potential savings are too large to ignore
April 29, 2015
16
The facts: Breaking down product development costs

E-MPV segment mainstream all new vehicle example
OEM B
OEM A
Typical development cost for vehicle and platform (excluding powertrain)
% of total development costs
100%
14%
17%
7%
1%
4%
1%
2%
5%
38%
11%
Underbody
Upperbody
exterior
Power- Brakes
train
installation
systems1
Suspen- Steering HVAC

sions/
wheels
Electri- Interiors
cal/
Electronics/
Connectivity
Common Total
general
Assy/
Paint
Frame/chassis
Potential
commonality
while
~70%
preserving
differentiation
~10%
~75%
~90%
~80%
~80%
~80%
~70%
~30%
100%
Potential
commonality
up to
~45-50% of
total
development
cost2
Potential benefits up to 2 billion on vehicle investments

1
2
Includes mounts, fuel system, cooling and other minor components/systems

Average weighted on contribution to product development cost
April 29, 2015
17
Powertrain portfolios show even higher duplications

across OEMs, both for engines
Overlap with future FCA engine offering
Major global car OEMs benchmarked
Engine lineup
OEM 1
OEM 2
OEM 3
OEM 4
OEM 5
OEM 6
OEM 7
OEM 9
>70%
>50%
>90%
Diesel
Small (1.3-1.6L)
Medium (2.0-2.3L)
Large (3.0-6.0L)
Gas
3 Cylinder
4 Cylinder
V6
Hybrid
V8
Mild (BSG)
Full
Minor overlap
Exotic engines1
Potential overlap with FCA
engine budget
>90%
~90%
~50%
>60%
~90%
High performance engines, limited productions, low volumes
April 29, 2015
18
and for transmissions

Overlap with future FCA transmissions offering
Major global car OEMs benchmarked
Transmissions lineup
OEM 1
OEM 2
OEM 3
OEM 4
OEM 5
OEM 6
OEM 7
OEM 9
~90%
~90%
~50%
~ 80%
~60%
~ 70%
~ 50%
>90%
Manual 5 Speed
Manual 6 Speed
FWD
MTA
DDCT
Automatic 6 Speed
Automatic 8/9 Speed
CVT
Manual 6 Speed
RWD
Auto. LD, 7 Speeds

Auto. LD, 8 Speeds
Auto. HD, 7 Speeds (1000 Nm)
Auto. HD, 8 Speeds (1000 Nm)
Potential overlap with FCA
transmissions budget
Potential elimination up to 1 billion in duplicated engines and transmissions spending per year
April 29, 2015
19
The facts: Sharing platform, vehicle and powertrain

development can yield significant savings
Illustrative investment for developing 2 full new vehicles
Indexed to 100, example mainstream B/C segment built on same platform
~50
~100
~20-401
~60-80
~50
Vehicle and
platform A
Vehicle and
platform B
Total stand-alone
investments for A
and B
Savings on total
investment
Total consolidated
investment
Illustrative investment for developing 2 new engines2

Indexed to 100, example for two 4-cylinder gasoline engines to be based on the same architecture
~50
~100
~25-30
~70-75
~50
Engine A
1
2
Engine B
Total stand-alone
investments for A
and B
Savings on base
development,
vehicle installation
Total consolidated
investment
Estimate based on 40-80% saving on the second vehicle leveraging commonalities in product development. Example for mainstream B/C segment
estimated with same methodology as of case for E-MPV segment (45-50%)
Assuming a powertrain average lifecycle of 10 years. Tooling synergies not considered
April 29, 2015
20
We believe large scale integrations are required to

unleash full potential
Potential for capital rationalization across different types of co-operation
Low
High
Drivers for capital
rationalization
Key
enabler:
Integrated
industrial
footprint
strategy
One-off technical cooperation
JVs
Cross-shareholding
enabled co-operations
Full
integration
Share R&D
costs and tech
development
Optimize
tooling
investments
Key
enabler:
Integrated
product
strategy
Maximize plant
utilization
Capture crossselling
opportunities
Capture other
opex
opportunities
Potential for
capital
rationalization
April 29, 2015
21
Potential synergies from consolidation of auto OEMs

would be ~70% driven by industrial rationale
Estimated benefits from consolidation of auto OEMs1
Sharing platforms
development costs
Technology and
product development
Leveraging
commonalities in
top-hat
development
(e.g. sharing component

development costs)
~70%
Avoiding budget
duplication for
powertrains
Optimization of
Cross-selling
~15%
Other opex
opportunities
manufacturing
investments and
production
allocation
(e.g. purchasing, SG&A)
~15%
Combinations of FCA with another large OEM would yield benefits of 2.5-4.5bn per year
1
FCA analysis of potential consolidation opportunities among top 10 global automotive OEMs
April 29, 2015
22
Consolidation can support significant ROIC and

valuation improvement
ROIC FY 2014
25%
Consumer & Retail
20%
Pharma
Consensus 2018
adjusted for
consolidation
Premium OEM
15%
OEM 6
OEM 8
Packaging materials
OEM 7
OEM 4
10%
Telecommunications
Oil & Gas
OEM 5
Chemicals
Building materials
Consensus 2018
Auto industry WACC: ~9%
Automotive
today
5%
Status quo
OEM 9
OEM 10
OEM 2
OEM 1
OEM 3
0%
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
EV/EBITDA1 2014
1
Including pension liabilities. EBITDA as per accounting principles adopted by each company
April 29, 2015
23
Some conclusions
Top OEMs spent over 100bn for product development in 2014 only,
>2bn/week in product development and tooling costs, and poised to invest at
similar rates in the futures
Historical returns have been broadly below cost of capital, even after the
restructuring of the US auto industry and NAFTA volumes at peak
Single purpose projects, JVs and the like are helpful, but they are not enough
Capital consumption rate by OEMs is unacceptableit is duplicative, does not

deliver real value to consumers and is pure economic waste
Consolidation carries executional risks BUT benefits are too large to ignore
Up to 4.5bn per annum, ~70% of which is a reduction in investments and R&D
Optimized industrial allocations, with no impact on number employed
Distribution (dealer networks not merged) and brands untouched by consolidation
An exceptional value creation opportunity for shareholders
It is ultimately a matter of leadership style and capability
April 29, 2015
24
The Red Queen
Well, in our country said Alice,

still panting a little, youd
generally get to somewhere else
- if you ran very fast for a long
time as weve been doing.
A slow sort of country! said the
Queen. Now here you see it
takes all the running you can do
to keep in the same place. If
you want to get somewhere
else, you must run at least twice
as fast as that!
L. Carroll
Through the Looking Glass
April 29, 2015
25

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Confessions of a Capital Junkie

An insider perspective on the cure for the industry's

April 29, 2015

Safe Harbor Statement